Beleaguered banks face uphill struggle

He is a leading adviser to Efma, the association representing the majority of the Continent’s main financial institutions.

As such, he can offer a good insight into the state of the financial services sector at large and is well placed to comment on the main issues facing the industry.

Unsurprisingly, perhaps, senior bankers are “still very much under pressure”, said Mr Kirkbright, who lives near Bridlington. “There is a certain amount of relief that they have got through a traumatic series of events, but there are so many pressures on banks at the moment that are not going to go away in a hurry.”

His biggest areas for concern include the continuing demise of smaller players in the market; the inability of many banks to become truly customer-centric; the branch sell-off by state-owned banks and the impact on customers; excessive regulation bringing innovation and development to a halt; the inability of banks to communicate a clear message on how they are run and why strong banks are important to help economic regeneration; a future brain drain in the industry; and a lack of clear vision and strategy at the top of institutions.

In the UK, he believes that HSBC and Barclays are better placed to take advantage of the market than state-owned rivals Lloyds and Royal Bank of Scotland, which are embroiled in selling off assets or integrating structures.

“Both banks need to go through massive transformation,” he said. “It will be an uphill struggle for these banks for years with no guaranteed survival.”

Smaller players will be hit hardest by increasing regulation and will find it harder to absorb and pass on the associated costs, he said.

In addition, their cost of funding and raising deposits will be higher, making it more difficult to compete with bigger players, he added.

Mr Kirkbright said: “Senior executives spend a great deal of their time managing regulation when this time could be better spent talking to and understanding their customers – but, unfortunately, they have little choice at the moment and I see little change in this situation in the next few years.”

He welcomed the introduction of customer charters as banks try to regain lost customer confidence and expects more institutions to follow suit, but he warned that it can be risky if the infrastructure and processes are not in place to deliver promises.

He also predicted that banks will start to look for a higher percentage of revenue from non-interest fee income, as profits from “managing the margin” become harder to achieve.

He said the banking industry would come to resemble the airline industry, with basic fares appearing cheap at first glance, but becoming more expensive once extra charges are included. “There is an inevitability about the end of free banking as we know it,” he added.

Meanwhile, Mr Kirkbright said banking executives are becoming worried about the power of online social networking sites which have the potential to turn a few negative customer comments into damning headlines.

But he warned that the tendency towards command and control-style management makes it harder for directors to adopt customer-friendly banking practices.

As a good example, he cited Italy’s CheBanca!, which has adopted “cheek-to-cheek” banking, with customers and staff sitting side by side and seeing the same information on-screen.

New UK market entrants are shaking up customer perceptions, such as Metro Bank offering 15-minute account opening time, which is creating another challenge to the status quo.

Individually, new players, including Tesco, U Bank and Jibun Bank, might not pose much of a threat to the big banks, “but together they could have a significant impact on the way customers view their banks”, said Mr Kirkbright, who is predicting more change in the industry.

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